Tree.com Reports Second Quarter 2013 Financial Results

            Tree.com Reports Second Quarter 2013 Financial Results

PR Newswire

CHARLOTTE, N.C., Aug. 13, 2013

CHARLOTTE, N.C., Aug.13, 2013 /PRNewswire/ --

  oRecord continuing operations revenue of $37.4 million, up 33% vs. prior
    quarter
  oRecord Variable Marketing Margin ("VMM") of $13.7 million
  oResults exceeded quarterly guidance on all metrics
  oBrand campaign awarded third most effective ad (#1 in Mortgage category)
    in Q2 by Ace Metrix and 2013 Inman Innovator Award for Most Innovative
    Digital Real Estate Marketing Campaign or Strategy
  oReceived final $10 million payment from Home Loan Center, Inc. transaction
  oLaunched improved mobile experience, new "Mortgage Negotiator" tool and
    enhanced Personal Loan product, continuing strategy of product expansion
    and diversification

Tree.com, Inc. (NASDAQ: TREE), operator of LendingTree.com, the nation's
leading online source for competitive home loan offers, today announced
results for the quarter ended June 30, 2013.

(Logo: http://photos.prnewswire.com/prnh/20110518/MM04466LOGO )

"Tree.com had another strong quarter where we grew revenue by more than 30%
quarter-over–quarter, even as interest rates increased sharply and refinance
applications declined industry-wide. Our strategic planning and effective
execution generated continued growth and another record-breaking quarter,"
said Doug Lebda, Chairman and CEO of Tree.com.

"In an environment where the broader market for Refinancing is decreasing and
Purchase application volume remains relatively flat, we achieved significant
increases in lead flow across both products. We believe these results are a
testament to the strength of our brand, the impact of our new national ad
campaign and the continuing effectiveness of our marketing machine.
Additionally, demand for our leads continues to grow, which we see as a sign
that our leads have become a more integral part of lenders' marketing mix. We
grew our network of lenders by 18% in the quarter and an impressive 31% of our
existing lenders increased their spend with us by more than 20%. As we
continue to drive our mortgage offerings in the face of rising rates, we're
also adding incremental revenue through product enhancements and
diversification. In Q2, we launched an improved mobile experience and a new
"Mortgage Negotiator" tool that allows consumers to compare their current
offers to those provided by lenders on our network. In early Q3, we launched
a completely revamped personal loan offering that leverages the sophisticated
exchange platform utilized by our mortgage products."

Second Quarter 2013 Financial and Operating Highlights



 Tree.com Exchanges Metrics (1)
 $s in millions
                              Q/Q                          Y/Y
                Q2     Q1     %         Q2 2012            % Change
                2013  2013  Change
                                        GAAP Adjusted     GAAP Adjusted
 Revenue
 Mortgage      $    $    31%       $   $       (2) 194%  92%
                33.5   25.5             11.4  17.4
 Non-Mortgage  3.3    2.6    27%       4.5   4.5           (27%) (27%)
 Corporate     0.6    -      NM        1.1   1.1           (42%) (42%)
 Total          $     $               $ 
 Exchanges      37.4  28.1  33%       17.0 $  23.0     120%  63%
 revenue
 Non-Mortgage   9%     9%               26%   19%
 %
 Selling and
 marketing
 expense
 Exchanges      $    $              $   $  
 marketing      23.7   14.6   62%        9.0 11.1          164%  115%
 expense (3)
 Other          2.7    2.6    2%        2.0   2.0           34%   34%
 Marketing
 Selling and    $     $               $ 
 marketing      26.4  17.3  53%       11.0 $  13.1     141%  102%
 expense
 Variable       $    $              $   $  
 marketing      13.7   13.5   2%         8.0 11.9          71%   15%
 margin (4)
 Variable
 marketing      37%    48%              47%   52%
 margin % of
 revenue
 Net
 Income/(Loss)  $    $              $  
 from           (2.0)  (0.3)  NM        (1.8) N/A         NM    N/A
 Continuing
 Operations
 Adjusted       $    $    (18%)     N/A $       (5) N/A (2%)
 EBITDA        3.4   4.1                   3.4
 Adjusted
 EBITDA % of    9%     15%              N/A 15%           N/A
 revenue
 NOTE: After the completion of the sale of substantially all of the assets
 of the company's former mortgage origination business in June 2012, Tree's
 revenues and expenses reflect the monetization on our mortgage exchange of
 all leads generated. Prior to Q3 2012, Tree provided non-GAAP adjusted
 Exchanges metrics to give investors a view into what our results might have
 been if the company did not monetize some leads through the former mortgage
 origination business. Tree is continuing to provide adjusted Exchanges
 metrics for applicable historical periods in which the company operated the
 mortgage origination business.
 (1) Adjusted Exchanges mortgage revenue, total adjusted Exchanges revenue,
 Exchanges marketing expense, adjusted EBITDA and adjusted EBITDA % of
 revenue are non-GAAP measures. Please see "Tree.com's Reconciliation of
 Non-GAAP Measures to GAAP" and "Tree.com's Principles of Financial
 Reporting" below for more information on these and other non-GAAP measures
 identified in this table.
 (2) Adjusted Exchanges mortgage revenue is a non-GAAP measure and is
 defined as revenue generated by our mortgage exchange plus modeled revenue
 for leads provided to the company's former mortgage origination business,
 assuming sale prices for such leads equaled sale prices of leads of similar
 quality sold to network lenders. Accordingly, this measure also assumes
 lender demand on the network would have been sufficient to absorb the
 additional lead volume without affecting the prices of the leads actually
 sold. Please see "Tree.com's Principles of Financial Reporting" for
 further explanation of this metric.
 (3) Exchanges marketing expense is defined as the portion of selling and
 marketing expense attributable to variable costs paid for advertising,
 direct marketing and related expenses, which excludes overhead, fixed costs
 and personnel-related expenses. Adjusted Q2 2012 Exchanges marketing
 expense is a non-GAAP measure that adds to Exchanges marketing expense the
 selling and marketing expense allocated to the company's former mortgage
 origination business and recorded in discontinued operations.
 (4) Variable marketing margin is defined as revenue minus Exchanges
 marketing expense and is considered an operational metric. Adjusted Q2
 2012 variable marketing margin is adjusted to use adjusted Exchanges
 revenue rather than revenue for the calculation.
 (5) Adjusted Q2 2012 adjusted EBITDA is defined as Adjusted EBITDA from
 continuing operations, plus modeled revenue for leads provided to the
 company's former mortgage origination business, minus Exchanges selling and
 marketing expense allocated to the company's former mortgage origination
 business and recorded in discontinued operations.



  oSecond quarter 2013 revenue of $37.4 million exceeded prior guidance,
    driven by substantial growth in our mortgage business. This represents
    increases of $9.3 million, or 33%, over revenue in the first quarter 2013
    and $14.4 million, or 63%, over adjusted Exchanges revenue in the second
    quarter 2012.
  oNon-Mortgage revenue grew 27% over the preceding quarter, continuing that
    trend from Q1 2013.
  oVariable marketing margin of $13.7 million in the second quarter 2013 was
    the highest level achieved since we began reporting this operating
    metric. This represents increases of $0.2 million, or 2%, over the first
    quarter 2013 and $1.8 million, or 15%, over the second quarter 2012.
  oContinuing operations Adjusted EBITDA of $3.4 million exceeded the high
    end of our guidance range of $2.5–$3.0 million.
  oWith receipt of the final $10 million payment related to the Home Loan
    Center, Inc. transaction, working capital grew to $72.8 million at June
    30, 2013. Working capital is calculated as current assets (including
    unrestricted and restricted cash) minus current liabilities (including
    loan loss reserves).
  oDuring the second quarter 2013, the company purchased a total of 44,142
    shares of its stock for approximately $0.8 million. 

Business Outlook – 2013

Tree is providing revenue, variable marketing margin and Adjusted EBITDA
guidance for full year and Q3 2013 as follows, noting that the recent increase
in interest rates generally, including mortgage rates, could introduce added
variability in the near-term:

For the full year 2013,

  oTree is increasing its top-line guidance. Revenue is now anticipated to
    grow 64%–70% over 2012 revenue reported on a GAAP basis and 38%–43% over
    2012 adjusted Exchanges revenue.
  oWe anticipate Variable Marketing Margin to be $51–$56 million.
  oWe continue to anticipate Adjusted EBITDA to be $15–$17 million.

For Q3 2013,

  oRevenue is anticipated to be 37-50% over Q3 2012.
  oVariable marketing margin is anticipated to be $13–$15 million.
  oAdjusted EBITDA is anticipated to be $4.0–$5.0 million.

Quarterly Conference Call

A conference call to discuss Tree's second quarter 2013 financial results will
be webcast live today at 4:30 PM Eastern Time (ET). The live audiocast is
open to the public and available on Tree's investor relations website at
http://investor-relations.tree.com/. For those without access to the
Internet, the call may be accessed toll-free via phone at (877) 606-1416.
Callers outside the United State may dial (707) 287-9313. Following
completion of the call, a recorded replay of the webcast will be available on
Tree's investor relations website until 11:59 PM ET on Tuesday, August 27,
2013. To listen to the telephone replay, call toll-free (855) 859-2056 with
passcode #21267656. Callers outside the United States may dial (404) 537-3406
with passcode #21267656.



TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
                                     ThreeMonthsEnded    SixMonthsEnded
                                     June30,              June30,
                                     2013        2012      2013      2012
                                     (Inthousands,exceptpershareamounts)
Revenue                              $  37,406   $ 16,970  $ 65,486  $ 30,205
Costs and expenses
Cost of revenue (exclusive of
depreciation shown separately        1,950       803       3,306     1,599
below)
Selling and marketing expense        26,386      10,969    43,641    21,621
General and administrative expense   5,651       5,831     12,207    10,634
Product development                  1,492       756       2,697     1,530
Depreciation                         872         1,046     1,757     2,270
Amortization of intangibles          43          106       86        213
Restructuring and severance          148         3         146       (61)
Litigation settlements and           2,909       216       3,937     438
contingencies
Total costs and expenses             39,451      19,730    67,777    38,244
Operating loss                       (2,045)     (2,760)   (2,291)   (8,039)
Other income (expense)
Interest expense                     (7)         (136)     (14)      (257)
Loss before income taxes             (2,052)     (2,896)   (2,305)   (8,296)
Income tax benefit (provision)       19          1,142     (1)       3,274
Net loss from continuing operations  (2,033)     (1,754)   (2,306)   (5,022)
Gain from sale of discontinued       10,003      24,313    10,101    24,313
operations, net of tax
Income (loss) from operations of     (891)       3,215     (3,433)   20,633
discontinued operations, net of tax
Income from discontinued operations  9,112       27,528    6,668     44,946
Net income                           $  7,079    $ 25,774  $ 4,362   $ 39,924
Weighted average shares outstanding  11,133      10,685    11,050    10,620
Weighted average diluted shares      11,133      10,685    11,050    10,620
outstanding
Net (loss) per share from
continuing
operations
Basic                                $  (0.18)   $ (0.16)  $ (0.21)  $ (0.47)
Diluted                              $  (0.18)   $ (0.16)  $ (0.21)  $ (0.47)
Net income per share from
discontinued operations
Basic                                $  0.82     $ 2.58    $ 0.60    $ 4.23
Diluted                              $  0.82     $ 2.58    $ 0.60    $ 4.23
Net income per share
Basic                                $  0.64     $ 2.41    $ 0.39    $ 3.76
Diluted                              $  0.64     $ 2.41    $ 0.39    $ 3.76



TREE.COM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share amounts)
                                                      June30,   December31,
                                                      2013       2012
                                                      (Unaudited)
ASSETS:
Cash and cash equivalents                             $ 85,283   $   80,190
Restricted cash and cash equivalents                  30,066     29,414
Accounts receivable, net of allowance of $554 and     17,778     11,488
$503, respectively
Prepaid and other current assets                      1,580      773
Current assets of discontinued operations             23         407
Total current assets                                  134,730    122,272
Property and equipment, net                           5,591      6,155
Goodwill                                              3,632      3,632
Intangible assets, net                                10,745     10,831
Other non-current assets                              111        152
Non-current assets of discontinued operations         129        129
Total assets                                          $ 154,938  $   143,171
LIABILITIES:
Accounts payable, trade                               $ 1,821    $   2,741
Deferred revenue                                      17         648
Accrued expenses and other current liabilities        28,038     19,960
Current liabilities of discontinued operations        32,068     31,017
Total current liabilities                             61,944     54,366
Other non-current liabilities                         616        936
Deferred income taxes                                 4,694      4,694
Non-current liabilities of discontinued operations    174        253
Total liabilities                                     67,428     60,249
SHAREHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 5,000,000  —          —
shares; none issued or outstanding
Common stock $.01 par value; authorized 50,000,000
shares; issued 12,472,335 and 12,195,209shares,
respectively, and outstanding 11,201,129 and          125        122
11,006,730 shares,
respectively
Additional paid-in capital                            905,408    903,692
Accumulated deficit                                   (807,118)  (811,480)
Treasury stock 1,271,206 and 1,188,479 shares,        (10,905)   (9,412)
respectively
Total shareholders' equity                            87,510     82,922
Total liabilities and shareholders' equity            $ 154,938  $   143,171



TREE.COM'S RECONCILIATION OF NON-GAAP MEASURES TO GAAP ($ in thousands):

Below is a reconciliation of Adjusted EBITDA to net loss from continuing
operations. See "Tree.com's Principals of Financial Reporting" for further
discussion of the Company's use of these Non-GAAP measures.



                                 Three Months Ended
                                 June 30, 2013  March 31, 2013  June 30, 2012
  Adjusted EBITDA from         $3,359          $4,086          $(317)
 continuing operations
  Adjustments to reconcile to
 net loss from continuing
 operations:
  Amortization of intangibles  (43)            (43)            (106)
  Depreciation                 (872)           (885)           (1,046)
  Restructuring and severance  (148)           2               (3)
 income (expense)
  Loss on disposal of assets   —               (25)            —
  Non-cash compensation        (1,432)         (1,433)         (1,072)
  Litigation settlements and   (2,909)         (1,028)         (216)
 contingencies
  Discretionary cash bonus     —               (920)           —
  Other expense, net           (7)             (7)             (136)
  Income tax benefit           19              (20)            1,142
 (provision)
  Net loss from continuing     $(2,033)        $(273)          $(1,754)
 operations



Below is a reconciliation of revenue to adjusted Exchanges revenue; selling
and marketing expense from continuing operations to adjusted Exchanges
marketing expense and adjusted EBITDA from continuing operations (reconciled
to net loss in table above) to adjusted Exchanges EBITDA.
See "Tree.com's Principles of Financial Reporting" for further discussion of
the Company's use of these Non-GAAP measures.
                                                        Qtr 2
                                                        2012
                                                        (In thousands)
Revenue (Continuing Operations)                     $16,970
Mortgage Exchanges Revenue                     $11,406
Adjustment: Modeled Revenue for leads sent to          6,026
LTL
Adjusted Mortgage Exchange Revenue           $17,432
Non-Mortgage Revenue                          4,484
Corporate Revenue                             1,080
Total Adjusted Exchanges Revenue               $22,996
Selling and Marketing Expense from Continuing           $10,969
Operations
Exchanges Marketing                          8,969
Adjustment: Shared Variable Marketing                  2,082
allocated to Discontinued Ops
Adjusted Exchanges Marketing Expense            $11,051
Other Marketing                                2,000
Adjusted EBITDA from Continuing Operations              $(317)
*
Adjustment: Combined revenue and marketing             3,944
Adjustment: Shared compensation costs                  (206)
allocated to Discontinued Ops
Adjusted Exchanges EBITDA                               $3,420
* See reconciliation in prior table.



TREE.COM'S PRINCIPLES OF FINANCIAL REPORTING

Tree.com reports Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA"), and adjusted for certain items discussed below
("Adjusted EBITDA"), adjusted Exchanges mortgage revenue, total adjusted
Exchanges revenue, adjusted Exchanges marketing expense, adjusted Exchanges
EBITDA and adjusted EBITDA % of revenue as supplemental measures to GAAP.
These measures are primary metrics by which Tree.com evaluates (or in the case
of adjusted Exchanges metrics, evaluated prior to the sale of the mortgage
origination business) the performance of its businesses, on which its
marketing expenditures are based and, in the case of Adjusted EBITDA, by which
management and many employees are compensated. Tree.com believes that
investors should have access to the same set of tools that it uses in
analyzing its results. These non-GAAP measures should be considered in
addition to results prepared in accordance with GAAP, but should not be
considered a substitute for or superior to GAAP results. Tree.com provides and
encourages investors to examine the reconciling adjustments between the GAAP
and non-GAAP measures set forth above. Tree.com is not able to provide a
reconciliation of projected Adjusted EBITDA to expected reported results due
to the unknown effect, timing and potential significance of the effects of the
wind-down of discontinued operations and tax considerations.

Definition of Tree.com's Non-GAAP Measures
EBITDA is defined as operating income or loss (which excludes interest expense
and taxes) excluding amortization of intangibles and depreciation.

Adjusted EBITDA is defined as EBITDA excluding (1) non-cash compensation
expense, (2) non-cash intangible asset impairment charges, (3) gain/loss on
disposal of assets, (4) restructuring and severance expenses, (5) litigation
settlements and contingencies, (6) pro forma adjustments for significant
acquisitions or dispositions, and (7) one-time items. Adjusted EBITDA has
certain limitations in that it does not take into account the impact to
Tree.com's statement of operations of certain expenses, including
depreciation, non-cash compensation and acquisition-related accounting.
Tree.com endeavors to compensate for the limitations of the non-GAAP measures
presented by also providing the comparable GAAP measures with equal or greater
prominence and descriptions of the reconciling items, including quantifying
such items, to derive the non-GAAP measures.

Adjusted Exchanges mortgage revenue is defined as revenue generated by our
mortgage exchange plus modeled revenue for leads provided to HLC, assuming
sale prices for such leads equaled contemporaneous sale prices of leads of
similar quality sold to network lenders. Accordingly, this measure also
assumes lender demand on the network would have been sufficient to absorb the
additional lead volume without affecting the prices of the leads actually
sold. The Company believes these are reasonable assumptions to facilitate the
purpose of this metric, which is to give investors a view into what the
results might have been if the Company did not operate HLC. Investors are
cautioned that there is inherent uncertainty in this metric and the Company
urges investors to consider this metric, and the other non-GAAP measures
discussed below that include this metric, in addition to results prepared in
accordance with GAAP and not as substitutions for or superior to GAAP
results.

Total adjusted Exchanges revenue is defined as adjusted Exchanges revenue plus
revenue from the non-mortgage verticals.

Exchanges marketing expense is defined as the portion of selling and marketing
expense attributable to variable costs paid for advertising, direct marketing
and related expenses, plus selling and marketing expense allocated to HLC and
recorded in discontinued operations. This metric excludes overhead, fixed
costs and personnel-related expenses. Adjusted Exchanges marketing expense is
a non-GAAP measure that adds to Exchanges marketing expense the selling and
marketing expense allocated to the company's former mortgage origination
business and recorded in discontinued operations.

Adjusted Exchanges EBITDA is defined as Adjusted EBITDA from continuing
operations, plus modeled revenue for leads provided to HLC, minus Exchanges
selling and marketing expense allocated to HLC and recorded in discontinued
operations.

Non-GAAP adjusted Exchanges metrics are not prepared in accordance with SEC
rules or Generally Accepted Accounting Principles requiring certain pro forma
financial information giving effect to the disposition of a material asset
that has occurred or in some cases that is probable, and they are not intended
to be a substitute for such financial information. The Company prepared and
reported pro forma financial information following the closing of the sale of
assets of Home Loan Center in accordance with SEC rules and Generally Accepted
Accounting Principles, which was filed as an exhibit to Tree.com's Form 8-K
filed on June 7, 2012.

One-Time Items
Adjusted EBITDA is adjusted for one-time items, if applicable. Items are
considered one-time in nature if they are non-recurring, infrequent or
unusual, and have not occurred in the past two years or are not expected to
recur in the next two years, in accordance with SEC rules. For the periods
presented in this report, there are no adjustments for one-time items, except
for $0.9 million related to a discretionary cash bonus payment to employee
stock option holders in Q1 2013.

Non-Cash Expenses That Are Excluded From Tree.com's Adjusted EBITDA and
Adjusted Exchanges EBITDA
Non-cash compensation expense consists principally of expense associated with
the grants of restricted stock units, stock options and restricted stock.
These expenses are not paid in cash and Tree.com will include the related
shares in its calculations of fully diluted shares outstanding. Upon
settlement of restricted stock units, vesting of certain stock options or
vesting of restricted stock awards, the awards may be settled on a net basis,
with Tree.com remitting the required tax withholding amounts from its current
funds.

Amortization and impairment of intangibles are non-cash expenses relating
primarily to acquisitions. At the time of an acquisition, the intangible
assets of the acquired company, such as purchase agreements, technology and
customer relationships, are valued and amortized over their estimated lives.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
The matters contained in the discussion above may be considered to be
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995. Those statements include statements regarding
the intent, belief or current expectations or anticipations of Tree.com and
members of our management team. Factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements include the following: adverse conditions in the primary and
secondary mortgage markets and in the economy, particularly interest rates;
seasonality of results; potential liabilities to secondary market purchasers;
changes in the Company's relationships with network lenders; breaches of
network security or the misappropriation or misuse of personal consumer
information; failure to provide competitive service; failure to maintain brand
recognition; ability to attract and retain customers in a cost-effective
manner; ability to develop new products and services and enhance existing
ones; competition; allegations of failure to comply with existing or changing
laws, rules or regulations, or to obtain and maintain required licenses;
failure of network lenders or other affiliated parties to comply with
regulatory requirements; failure to maintain the integrity of systems and
infrastructure; liabilities as a result of privacy regulations; failure to
adequately protect intellectual property rights or allegations of infringement
of intellectual property rights; and changes in management. These and
additional factors to be considered are set forth under "Risk Factors" in our
Annual Report on Form 10-K for the period ended December 31, 2012 and our
Quarterly Report on Form 10-Q for the period ended June 30, 2013, and in our
other filings with the Securities and Exchange Commission. We undertake no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results or expectations.

About Tree.com, Inc.

Tree.com, Inc. (NASDAQ: TREE) is the parent of several brands and
businessesthat provide information, tools, advice, products and services for
critical transactions in consumers' lives. Our family of brands includes:
LendingTree®, GetSmart®, DegreeTree®, LendingTreeAutos, DoneRight!®,
ServiceTree^SM and InsuranceTree®.Together, these brands serve as an ally for
consumers who are looking to comparison shop for loans, education, auto, home
services and other services from multiple businesses and professionals who
will compete for their business.

Tree.com, Inc. is headquartered in Charlotte, N.C. and maintains operations
solely in the United States. For more information, please visitwww.tree.com.



SOURCE Tree.com, Inc.

Website: http://www.tree.com
Contact: Investor Relations, 877-640-4856,
tree.com-investor.relations@tree.com
 
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